UK decommissioning costs continue downward trend

Britain’s offshore oil and gas decommissioning costs have fallen by 2% to £48 billion (US$63.6 billion), according to the latest estimate from the Oil and Gas Authority (OGA).

Its “UKCS Decommissioning Cost Estimate 2020” shows that total decommissioning costs across the sector have come down by 19% since the OGA started benchmarking in 2017.

That year, the baseline estimate was £59.7 billion (US$79.1 billion).

The latest 2% cost reduction is due to improvements in planning and execution practices, leading to a lower estimated cost for platform and subsea infrastructure removals in the northern and central UK North Sea.

There are opportunities for further cuts, the OGA added, and these are needed to meet its UKCS decommissioning cost reduction target of more than 35%, to below £39 billion (US$51.7 billion).

Various operators have achieved significant improvements in subsea well P&A costs, the report found, helped by cyclically low rig/vessel rates in 2018/19 and greater execution expertise.

A combination of campaign approaches to subsea infrastructure decommissioning and flexible timing are also bringing cost reductions. However, campaigns still appear to be limited to those which individual operators can organise within their own portfolio rather than multi-operator campaigns.

Topsides and substructure removal costs too are coming down as lifting contractors build develop greater removals expertise and improved execution practices. Operators have been customising their project management for decommissioning, providing information and schedule flexibility for the supply chain to put together cost-effective proposals.

However, projected post-Cessation of Production running costs rose during 2019 due to weaknesses in late-life/warm-phase asset management on some active projects preventing large running cost savings from being captured, and some operators’ over-optimistic initial estimates.

Some of the reductions are in actual decommissioning expenditure, with 2019 expenditure £170 million (US$225 million) lower than in 2018. This was partly due to some activity although 70% came from cost reductions in live projects.

The OGA is also supporting the UK government’s commitment to net zero emissions by 2050 and is working with operators on more repurposing of offshore infrastructure to help meet that aim.

Pauline Innes, Head of Decommissioning at the OGA said: “The last few months have been extraordinarily tough for those working in the sector, including those in decommissioning, and in some cases project deferrals and uncertainties may have shifted focus.

“However, looking ahead, there’s more to be done to drive costs down safely and sustainably. We’ve seen how performance can be improved when learning and good practice are shared.

“Notwithstanding this success, the next 16% of cost reductions will need behaviours and approaches beyond those to-date, with aligned/incentivised commercial models routinely adopted, and cost-effective outcomes achieved regardless of which operator is contracting the work.”

Source: Offshore Magazine